The country's most deprived council areas - including Liverpool and Knowsley - have seen government cuts almost three times as high as the richest councils, new figures show.
On average, the top 10 per cent of poorest councils in England have received a 28.3% cut in the last 13 years, since the coalition government was elected in 2010. In that same time period, the top 10% of richest councils have received a 10.1% cut on average .
The figures have been put together by SIGOMA, the the Special Interest Group of Municipal Authorities, which says there is an increasing disparity between the wealthiest areas of England, which can raise more funds from high council tax bases and business rates and the poorer areas that have been cut more and can raise less.
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Knowsley is considered the second most deprived local authority area and has faced 25.4% in cuts since 2010/11., while the third most deprived council - Liverpool - has faced a cut of 30.3%.
Meanwhile the SIGOMA figures found that the least deprived council areas of Leicestershire and Central Bedfordshire have faced cuts of just 9.2% and 7.7% respectively.
Throughout the austerity agenda of the past 13 years, council bosses in Merseyside have spoken out about huge cuts to their government funding. Liverpool Council has now lost around £500m in that time.
The problem is worsened for poor councils like Liverpool and Knowsley as they are unable to raise as much cash in council tax and business rates as richer areas to replace the lost central funding because of the type of properties in the various areas.
Government funding represented over 55 per cent of council’s core spending power in 2013-14 but now represents just 37 per cent per cent in 2023-24.
At the same time, the percentage of council funding from local revenue - such as council tax - has increased to over 62 per cent in 2023 as they try to plug the funding gap, an increase of almost 18 per cent since 2013 (when it was 45 per cent of funding).
The Government has been lowering the amount of funding for local government. In 2013-14, they paid some £4.9 billion more in grants than councils handed over in business rates. By 2023, the overall fall in funding meant councils will receive £4.5 billion less than will be raised from business rates - a reversal of some £9.4 billion, SIGOMA said.
The switch from direct grants to local taxes means the reduction has a lower impact on the wealthiest areas, which rely less on grant funding and can raise more from council tax, business rates and other growth-based local funding sources.
Chair of SIGOMA, the Special Interest Group of Municipal Authorities, Cllr Sir Stephen Houghton, said the structures that support the fair distribution of funds raised through taxation have been replaced by ones that tend to reward high-value housing stock and a large and thriving business rate base.
This has resulted in an increased disparity between the wealthiest areas of England which rely less on grant funding and can raise more from council tax, business rates and other local funding sources.
The business rate retention system was first introduced in April 2013. It allows councils to retain up to half of the revenue raised from business rates in their local area, with the remainder retained centrally by the Government and used to provide grant funding for local authorities.
However, retained business rates growth is not counted as a core spending power, and instead allocated on a growth-based formula and not needs-based.
Cllr Sir Stephen Houghton added that the current policy has been a failure and directly hurts council funding pots. Meanwhile, the planned review of the system, originally scheduled for 2020, has now been delayed until 2025 and is directly contributing to further disparity between regions and damaging the plan to help level up the country.
He added: “Failure to reset business rates growth has unfairly disadvantaged the poorest councils over the last three years. The system needs serious reform. Reversing the trends will not happen overnight and we need to introduce a new model that reforms local Government finance to create a fairer funding system.”
“The poorest areas have seen the biggest cuts and for “levelling up” to mean anything the Government should be looking to reverse these cuts and create a funding formula that funding according to council needs.”
As part of their soon to be released Manifesto, SIGOMA has put forward a new model that provides five steps to creating a fairer funding system for councils. The steps are:
Step 1: The Government must publish data showing all un-ringfenced council revenue funding, including business rate growth, so that councils and the public have a clear idea of how much revenue funding is available at council level. This can be done now and should cover recent history.
Step 2: The switch from incentive funding to needs funding must begin at the first available opportunity and be maintained. Retained business rates growth should diminish as a new needs formula is introduced and we would expect a transition fund would be introduced for those worst affected to provide a soft landing to their new needs share.
Step 3: A full or partial re-set of business rates to allocate more funding according to needs. This is redistributive and would be revenue neutral to help provide councils with equal funding opportunities.
Step 4: The existing needs formula should be populated with more up-to-date data, again neutral to the overall Budget, giving a more up to date reflection and understanding of relative needs.
Step 5: The Government should increase the proportions of rate income distributed as funding back up to the level of 100%, in 24-25 this would begin with the additional social care grant already planned in the Budget announcement.
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